'Leccy price hike: Greens to blame as well as energy biz

Analysis UK consumers seem set to suffer a vicious round of electricity price rises in the near future: and for the first time the energy suppliers are not only blaming the gas market but openly pointing the finger at steadily escalating government green policies whose effect is to drive up utility bills.

ScottishPower retail director Raymond Jack, announcing swingeing consumer price rises which are likely to be matched by the other major energy companies, had this to say:

"The change in prices announced today is as a result of sustained increases in the wholesale energy market [but] the rising burden of non-energy costs faced by Britain’s energy suppliers, including the cost of meeting Government environmental and social programmes and the cost of distributing electricity on the national grid, has also placed further upward pressure on energy bills."

There is only a limited amount that the government can do about the gas market, which also seriously affects the electricity one as much of UK's electricity is generated by burning gas. But even if gas prices stabilised permanently tomorrow, the British people could look forward to another four years of climbing electricity prices - and then those prices staying high for at least a couple of decades past that point.

Why? Because of government regulations imposed on the energy companies, whose effect is to drive up prices and pass the resulting extra cash to the owners of renewable power generators: from massive windfarms to rooftop solar panels on houses.

The first of these schemes is the Renewables Obligation, which compels anyone supplying electricity in the UK to present Renewables Obligation Certificates (ROCs) equal in number to a given percentage of the total 'leccy they supply (in megawatt-hours) each year. This percentage has been steadily climbing since the RO was introduced at the turn of the century: today it is 11 per cent and it will climb to a bit more than 15 per cent in 2015. After that it will persist until at least 2037 - it was supposed to stop in 2027 but the scheme was extended last year.

ROCs are issued by the government to the owners of any powerplant deemed to be "renewable" - that is one which doesn't increase UK carbon emissions and isn't nuclear. Some kinds of plant get more ROCs per megawatt-hour than others: expensive offshore windfarms, for instance, get two ROCs/MWh at the moment while cheaper onshore windmills get only one.

As the energy suppliers need more and more ROCs every year in order to avoid being hit by punitive "buy-out" fees, they must purchase ROCs from the renewables owners (or make them in their own renewables plants). A ROC is thus worth money, a lot more money than a megawatt-hour of electricity can be sold for. From a revenue point of view, a wind farm or whatever is not a machine for generating electricity: it is a machine for printing valuable ROCs. You would never cover the costs of building a windfarm, tidal project, solar panel etc simply by selling the electricity it can generate: renewable hardware is expensive and doesn't produce much energy.

The energy suppliers pass the costs of obtaining the ROCs - the costs of building the windfarms etc - on to their customers. As the government has gradually escalated the ROC requirement over the last ten years, it has forced prices up: even if the gas market had never changed, we would have seen a steady rise in electricity prices.

In essence the ROC scheme is a hidden tax on electricity which is used to subsidise renewables. But a flat tax like that - one which hits poorer people, to whom the electricity bill is a noticeable expense, disproportionately hard - would be politically difficult to implement, so the way it is kept off the government's books is particularly cunning.

And that's not all. The government has also seen fit to introduce another mechanism known as Feed In Tariffs (FITs) designed to shower cash on certain kinds of smaller-scale renewable generators such as rooftop solar panels. A householder installing solar panels on their roof gets paid a large sum of money simply for producing energy and using it himself: he gets paid a small additional amount if any of the juice is supplied to the grid. A person meeting all their electricity needs using their own solar panels added to their roof gets paid quadruple what their electricity bill would have been otherwise.

Again, this money comes not from the government but from that person's chosen electricity supply company: as FIT advocates gleefully note "the bottom line is that people who don't install renewable energy systems pay for those who do!".

Again, ordinary people see their bills driven up in order to reward those who can afford to shell out many thousands of pounds for solar panels - or to reward businessmen who can borrow that money easily and the financiers who lend to them. The solar panels would never pay for themselves normally in the UK's climate*, so another stealth tax on the less well-off has been introduced.

There are strong hints that the UK solar FITs will be reined in this year, as they already have been in Germany: a lot of businessmen were making big money out of these schemes. It's to be hoped that soon only smaller installations which are actually connected to a home will be eligible - although some will still grumble at having to pay a fat tribute to their solar-panel-owning neighbours as well as paying again to ensure that there will still be grid power there for them to draw on when the sun goes down.

In summary, then, we can all look forward to years of climbing electricity prices. The fossil-fuel markets will play their part, as will price-gouging by the Big Six energy suppliers. But more and more, other people and things will also be squeezing our wallets: in particular, windfarms and people with solar panels on the roof. ®

Bootnote

*Typically solar installations cost £4-5k per kilowatt of peak output. They yield perhaps 800 kilowatt-hours (units) per kWpeak each year: on the order of £80-£100 worth of electricity. They will pay for themselves in 40 to 50 years: but they will only last for 20.

The story's not quite so grim with other UK renewables, but in general, in a renewables-powered future, energy or anything which involves much energy - food, transport, manufactured stuff - basically everything - is going to be a hell of a lot more expensive. In other words, we're all going to be very poor.